Hybrid long-term care products are not new. In fact they have been around for more than 25 years. It is just that many of the recent concerns about traditional long-term care insurance have brought attention to hybrids.
Hybrids are a combination of LTC insurance and either life insurance or annuities.
The original versions were mostly single premium permanent life insurance with a rider that lets policyholders pay LTC expenses from the death benefit. If that was exhausted, most plans have a rider that will cover more LTC if needed and in some cases an unlimited benefit. Additionally, some annuities offered similar types of benefits, just on an annuity chassis.
So why did consumers buy these products? Most where wealthy clients and could afford the larger premium associated with this these hybrids. They could leverage their money for much more coverage. If you don’t need LTC, hybrids will return your money or parts of it to their beneficiaries. These plans also offered the option to get your money back. Therefore, clients got the owner versus renter type of insurance coverage. Many look at this as a smart way to self-insure.
In that last 10 years or so, many carriers have added expanded versions of hybrids. Multiple pay Life/LTC products have boomed and opened up the market to not just the wealthy. Individuals or couples can purchase a whole life / universal life hybrid and pay annually for any number of years they choose and get the security that if they don’t need LTC, the premiums they paid were not a “waste”. After all, that is one of the greatest concerns consumers have when considering long term care insurance. Compared to most LTC insurance plans, the premiums will be much more, but the sense of security that they could get the money back, weighs heavy.
Additionally, most hybrids are guaranteed never to go up and therefore, consumers feel better about the rate increases LTCi have been experiencing in the recent years.
Annuity hybrids have also seen rapid growth in recent years. Annuities can tend to be easier to health qualify for since they don’t usually leverage for as much LTC as their life counterparts. Annuities can be funded from other types of annuities and the tax savings of converting them can be extremely beneficial. On the downside, annuity hybrids are mostly only single premium and many really don’t leverage for more LTC than the annuity value. Therefore, many annuities are still self-insuring, you just get some good tax benefits.
Like most financial products, some are better than others and everyone’s situation and finances are different. Traditional LTC insurance may still be best for many consumers. You just need to consult with a long-term care panning specialist to determine which is best for you.
As a long-term care planning specialist for 16 years, myself, like most of us have been challenged with getting everyone that we work with some sort of coverage. We just want to help everyone, but unfortunately we cannot. The three main factors are health, age and affordability. Long-term care insurance requires that you be in “decent” health and insurance companies are not getting easier on underwriting. LTCi stops taking applicants around age 75. And then of course if you have waited to address planning, the premiums have become unaffordable for many.
Short-term care plans provide care for usually less than one year, hence the name. According to most insurance carriers, the majority of claims are under a year, but still many may last for years. Most of these plans are designed to provide care after a hospital stay and assist with recovering either at home or in a facility. Many are for chronic care only with some strict limitations. Some work just like LTCi in qualifying for care, but not the typical 90-day wait period or expectation of care needed longer than 90 days. Some only cover chronic care, some cover all types.
Short Term Care Pros:
Short Term Care Cons:
In summary, short-term plans are great for many, especially those with many health issues or older ages that prevent them from qualifying for long term care insurance. However, if you are younger and in better health, traditional long term care insurance will do much better for most.
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MOST PEOPLE DON'T KNOW ABOUT ELIMINATION PERIODS
An elimination period is essentially long term care insurance’s version of a deductible. It is a set number of days that the client pays for before the insurance company pays a benefit.
Most people I speak with are not familiar with what an elimination period is and the one’s that think they know typically don’t understand the full meaning. I also find that a lot of agents skim over the Elimination period quickly leaving clients thinking it is not a big deal. As you’ll see below the Elimination period is a big part of long-term care and if designed incorrectly can cause a nasty surprise come claim time.
THERE IS NORMALLY A 90-SERVICE DAY PERIOD
For example; an insured has a policy with a 90-service day elimination period. Then the insured has a stroke and needs help with his/her activities of daily living. After the claim is approved the insurance company will wait to pay benefits until 90 days of benefits have been paid for by the insured. Say the care the insured needs is about $150/day for Home care. 90 x 150 = $13,500. In this scenario the insured had to pay $13,500 before his long-term care policy started to pay his benefit.
This may seem like a lot or a small blip to the overall cost of long-term care, but it is something important to consider when purchasing a long-term care policy. Most policies sold today are sold with 90-day elimination periods. In my opinion this is for a couple of reasons.
A SERVICE DAY PERIOD IS DIFFERENT THAN A CALENDAR DAY PERIOD
Service day means that you actually have to receive 90 hands on days of care to reach the end of the elimination period. Jerry Brown, senior partner at Classe Financial Group, elaborated on this.
“Say you need care at home to start you claim but only need care four times a week, only four days counts toward the elimination period even though seven calendar days have gone by,“ said Brown. “In this Scenario the Elimination period would actually take 158 calendar days 22.5 weeks until the elimination period was met.”
On the other hand, calendar day means that 90 calendar days must go by before the elimination period is met. In the scenario above the elimination period would be met after day 90 even though they only paid for 52 days.
NOT KNOWING THE DETAILS OF YOUR POLICY CAN COST YOU
Some companies only offer calendar day elimination periods while some only offer service day. There are a few that let you pick which one you want with calendar costing a little bit more. Based on the two choices I recommend having a calendar day elimination period if it is available.
In closing, it is important to speak with someone who knows how elimination periods work because if they are designed wrong they could end up costing you significantly come claim time.
Long Term Care Insurance has made many adjustments over its 50-year lifespan. One major adjustment is Gender based pricing. This change was not well received to say the least.
Long Term Care insurers looked back at claims and found that 70% of their claims were female to only 30% male. The reason for this issue was easy to understand. Women on average live longer than men. Sadly, this also meant that with new plans women would pay more than men. In most cases quite a bit more. With most carriers the difference is about 40% more.
WHAT ARE THE BEST ALTERNATIVES FOR WOMEN?
In summary, just because Long Term Care cost more for being female do not write it off. The purpose of this cost difference is not an inconsideration to women, but a crutch to ensure their financial security. With that in mind, there are various discounts and benefits that experts can use to find the most fiscally responsible plan.
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